good morning. sights set on 1500 on the s&p. rising to its highest level since december of 2007. today's test, we have quarterly results. we'll hear from general electric and morgan stanley, among others, before the opening bell. and on the global front, china snaps. seven straight quarters of slowing economic activity to ramp it back up. it's the rate of change we're talking about. or change in the rate. friday, january 18th, 2013 and "squawk box" begins right now.

>> good morning. welcome to "squawk box." i'm andrew ross sorkin along with joe kernen. becky is on assignment today. our newsmaker of the day, morgan stanley ceo james goreman will joan is live at 7:15 eastern time. we've got a lot to discuss with him about the fate of that bank and wall street. in the meantime, let's get you up to speed on the day's stories. the big one, china aes economy rebounding in the final quarter of to 12. growth to 7.9%, up from 7.4% the appreciate quarter. economists do caution, though, that a chinese recovery is likely to be gradual and weak to drive a global rebound without improvement in the u.s. and europe. also, the fate of dozens of hostages in algeria is still unknown. the algerian military stormed a gas field where the workers were being held. six people if not more are

believed to have been killed. a team of experts from boeing and the aviation experts are arriving in japan today. today the japan transportation safety board released a picture of the battery. they said the battery was blackened and carbonized, had a bulge in the middle and weighed 11 pounds less than normal. and the interview everybody is talking about, i stayed up late to watch it, lance armstrong telling oprah that he cheated. >> in all seven of your tour de france victories, did you ever take banned substances or blood dope? >> yes. i view the situation as one big lie that i've repeated a lot of times. i'll spend the rest of my life trying to earn back trust and

apologizing to people. >> joe, i stayed up and watch this and i was riveted. i thought this was like michael jackson, remember that interview when he said he was in bed with the children. i know you said you knew he was always cheating. i was one of those people that held out hope until the bitter end. this interview was so cold and so calculated. even though he said he was sorry, i couldn't believe that inside he felt he was sorry. >> and i finished with lance armstrong -- i don't know. >> you're done with him. >> you're in the celebrity -- the cult of celebrity was everything. >> no. i remembered watching him win. like so many -- >> it's that much more despicable with his -- you know, when he would say, look, i had cancer, i would never put anything in my body. we have a personal experience with him here. he was on the show. one of my coanchors asked after

a ten-minute interview only one question about juicing or drugs ske went off, walked off the set. the guy saw him later and lance armstrong wanted to fight this guy because he had asked him that question. this guy has got mental problems. >> but that is what is so remarkable. >> he has mental problems and he's a narcissist so through ask through. and, you know, his best friend said he would be a petty criminal if he hadn't started biking. he's like a sociopath. i'm just not into -- i don't know. michael jackson, lance armstrong -- >> i'm just saying in terms of the magnitude of a celebrity interview where you saw admissions of things you couldn't believe, i thought, he still didn't get it. there was a missing level of intro inspection, he said he was sorry, he didn't feel that he was sorry, and all of the families that he attacked and the lives that he ruined -- >> right. while he was enriching himself

and they were average guys. they weren't famous or weren't dating sheryl crow. those guys didn't have $100 million and he made them, saying you're trying to piggyback on any celebrity and make money by writing a book on it. the only thing i'm interested in, michelob, what is their problem? there he was, six, seven months ago, toast ago beer and riding around on -- they were that stupid? they weren't. they were enabling him, too. >> he sued his masseuse for going public and says she overheard him talking about drugs. oprah said, you sued her. he said, i don't know, we sued so many people. >> there's a method to his madness here. and i don't want to give him even the possibility that this would somehow rehabilitate him. >> i think he's not -- i

actually thought after this interview, even though we're all watching it, it's like a drive by. >> maybe like watching the white broncos. you can't look away. >> good comparison. >> were through? >> i remember that very well. the chicago bulls playing against the knicks that day. i remember that. >> i do miss johnny cochran and the guy on seinfeld. i forget, they had a guy that would rhyme, too. but if the glove doesn't fit, you must acquit. this other stuff, i don't know, i'm done. we just spent five minutes on it. >> we can talk about business. >> two early stocks to watch this morning, intel. this is another one. we've been talking about intel for three or four years being at $21 a share. it slowly looks like it was ready to finally break out. if you look at the long-term chart, you see it right back to what you would have to think over the last five years has been its average price.

>> in your opinion, was it draw a line right in the middle of that. this after shares issued a disappointing forecast. analysts are worried about a sharp increase in intel's capital spending plans, given concerns about slow demands for personal computer. i don't know, do people still buy personal computers? you've got six different ipads. >> i still have a laptop. i need a keyboard. >> okay. capital one taking a hit after hours. earnings and revenues missing the mark. shares of american greetings getting a boost after the closing. a going private proposal, family disclosed a 53.6% stake in an amended filing. let's get to phil orlando for his take on the markets.

for years and years, we used to look at the value line ranking and in that, do we ever mention val line any wore? >> well, i didn't. >> how long has it been? >> it's been ten years. >> you were one of the first guests on "squawk box." >> you and faber were in the pod, right? >> yes. arguing. >> but bonding, as well. >> this is how i watched this year play out. we got a bounce back, a fiscal cliff being set, we had a great week. then it was like, okay, this is all we're getting. we're back to 13,400 on the dow. yesterday the claims numbers were low, the housing starts appropriate. somehow it looks like the economy seems -- whether it's a coincidence or not, things seem to be justifying the move up. and the averages, now they look

like they have some support. things are getting better. >> yes, they were pretty good. philly fed number wasn't very good. manufacturing is sloppy. >> i figure the philly fed may go up next time because they have chip kelly. >> exactly. so with the jobs data, the adp number which we think is a leading indicator was pretty good. the claims number yesterday was the best number in five years. that was the survey week number for the january report. so those numbers ought to get a little bit better. now, the bigger picture, though, is we're still running at about a 150 k multiple run rate on jobs. and at this point, it looks like, you probably ought to be 250, the 300. >> i saw some people saying we were going to do 175. >> but the numbers are getting better. we're not going the other way. we don't think we're going in a recession, but we've gotten the first part of the cliff discussion and the market -- we've gotten this little bit of a sign of relief rally. the bigger part, though, and

this is where you're sort of going, we only got half the equation resolved a couple weeks ago. haven't done the spending piece. the spending piece is coming in the february/march time frame and that's one of the things that we're both concerned about. >> you saw the republicans at least intimating at this point that they're going to be some short-term extension in the debt ceiling and focus on spending. they seem -- you know, they seem to be a little bit hesitant to allow themselves to be set up again as people that are trying to destroy the economy. they're tired of being put in that position where they're holding back the economy. and i think it was the accusation in the first place, but they're sensitive to this point and they're going to roll over. >> they're very sensitive. the political realities of the situation is that i think we all know what needs to be done longer term. the reality is can they get any of this done in the next two months? and that's a much bigger question. i think they're trying to figure that out right now?

>> well, we will have people that will argue that we don't have a spending problem, that president obama said we're going to have an economist on today on how you get -- you know, we're going to talk to him. he says the one thing that would hurt the economy is in cuts in social security or medicare or medicaid. any type of reform to those things. >> to the true liberal -- >> other than raising taxes up to the level where you fund the promises that we've already made. the entitlements that we've already made and the guarantees we've made, they just want to raise taxes on somebody. i don't know who, to the point where we never actually reform medicare, medicaid or social security. >> the question i want to ask him, is there ever a time that he's making, is it now given where we are in the economy? >> well, the question is, you put in a hundred and you take out 400 in medicare and the government covers 300. >> and it makes no sense. >> well, no, but there are

people that think that the government's roll is to provide that 300. and so we should raise taxes to the point where you -- it doesn't matter that you -- >> right. >> it doesn't matter. that is the redistribution. >> that's the agal tearan notion or the equality, the fairness in outcome. >> i'll give it to him. we'll ask the question. >> i just hope you got fired up watching lance. >> i'm fired up watching lance. i'm fired up for that interview. >> i can tell he hurt you. i could tell from when you were over there, you were looking for a hero. >> i was. lance armstrong hurt me. but hurt so many people. by the way, i had a yellow wrist band. i wear my blue wrest band with the kids on it now, but i used to wear a yellow one. >> now i'm understanding. you were permanently -- i never believed. but i have a question above and beyond that and my opinion

changed when i think it was johnny bench changed my position a little bit. we expect these guys to be warriors and this feth hurt they're only out for two days. they all want to be like cal ripken and never miss a game. and sometimes all of the pressure to do that and you think everyone else is doing it, so, you know, either legalize it which you can't do because it's bad long-term for people's health. but if everybody would -- >> but was he doing it and was the team doing it to a different degree? that's the case against him suggests he, by the way, says not that different. he said it was similar to everyone else. >> kelly evans does what she does so well, i wonder whether she has some kind of performance enhancement. >> it's possible. >> maybe it's coffee with her or sleep. >> though, tea. it's tea, definitely. >> five-hour -- >> what kind of tea leaves are

those? >> so i've always loved herbal tea, but coming over here -- because i was sensitive to caffeine. i am a complete addict to drinking english tea with milk. even when i was back in the states last time, i brought some here from the shop. i think that one is legal now, though, which is a relief. let's take a look at what's happening quickly overnight in markets. there's a ton of activity. first, a general sense of what stocks have been doing. the nikkei over here is the one to watch. you know how much i like to talk about the japan story. up 2.9% in one trading session. that's one of the highest gains that we've seen on a day in quite some time. other stocks across the board rallying. what's interesting over there, the ftse is up .5% in britain even though the december retail sales figures disappointed coming in weak during that critical christmas period. nevertheless, moving higher on

that news. slip around, let's take a look at what we want to talk about. commodities, i think, because this one is in focus. brent and light crude down. only marginally so. less than a tenth of a percent for light crude. about .2% for brent. if you consider the event we've had overnight, the iea coming out tighter than expected. chinese demand picks up overnight. the gdp figures coming in stronger than expected. david cameron puts off his big eu policy pictures first. the fed putting out a statement saying there are less than 30 british nationals overnight in those events. in the meantime, a moratorium indicating that the terrorist groups are going to use these kidnappings as a way of furthering their activity and raising funds. they're warning algerians, in fact, to stay away from some of these sights and is we've had guests this morning telling us that they think the market is

underappreciating that this is a game changer in activity not just in mali, but across west africa in general. lastly, the aussie/dollar is down, too. there is some risk coming out in this risk off despite stocks doing better. the dollar/yen had punched through 90. it's now below 89. that was above 1 is.25. it's moving back to some of its gains. so some major levels hit in forex today, guys. it's not just about 1500 on the s&p. although to be sure, people around the world will be watching that level, as well. back over to you. >> kelly, are you behind the jap foes because they are the ultimate kainsians at this point? >> no. what i love, joe, what i'm dying to see if finally whether this experiment, now that they've decided they're going to be extremely bold again and we'll

see whether the activity really does follow. at least the rhetoric is there. it's been two or three decades of status quo in japan. as one analyst put it the other day, it feels as though time has stopped in japan. the reason why i'm so interested in the story is i want to know if this is finally going to change anything. we're starting to see a little bit of evidence there. 90 on the yen. you're seeing what's happening on the nikkei. but it's so important for what happens happening is in the rest of the markets, in the uk, in u.s. and the europe, that's why i think japan is so important. >> no. you're glad. you're with them. you're with them on the big stimulus. i wonder when the last time was they had any inflation. you were in preschool, i think. i'm sorry, we have to go. but find out when the last time they had -- >> find out. i'm going to go play in the snow. >> go smoke from tea or whatever you do.

>> a new nbc news wall street -- >> did she say she drinks -- >> i don't know. anyway, we have a poll out today. i was fascinated last night. chief washington correspondent john harwood joins us with the details. i was fascinated with some of the nra data and is what people blame the gun allowance on, john. it was like viability of guns, it was at the very bottom for the things that -- it just seems like maybe some people were a little disappointed with the results of the poll. i don't know. >> well, it did have some results that were chasening for those who were hoping for a quick reaction from congress. the nra's image was a little bit morrow bust than people thought. its net positive. and only down slightly from two years ago after the gabby giffords shooting. >> and you go to republicans and it was, like, 60% or something or almost 70% approval. but, you know, sometimes the media generally thinks the bubble that they're in, the

media just assumed that the entire country hated the nra. >> i don't know if it's the media aren't, but -- >> well, people that report on the new stations like the big three and cable channels. >> well, it is true -- >> new york newspapers 37. >> it is true that you've got a big split in opinion in the country and i think if you go to the coast of the country and the east coast is where large media organizations tend to be headquartered, the nra is much less popular than it is in the interior part of the country. >> right. the guys that are writing the stories for the newspapers and for the tv -- for the network news. >> there's some truth to that. >> okay. >> but look, let me run through some of the economic related elements of this poll. because i think they're significant. first of all, when you look at how americans approach the second obama inaugural, they're very much resigned to a pretty difficult time economically.

there isn't nearly the sort of hope that you had in 2009 when we asked people is 2013 going to be a year of economic expansion and opportunity or where where you pull back and stay for hard times? by two to one, people say they're going to pull back and save for hard times. president obama's approval rating is over 50%, it's at 52%. not bad. but not a real spike as sometimes you get with a re-elected president who benefits from the absence of bad feeling once the election is over. he's doing a little better, but he only moves in a narrow band. republicans or the congress, rather, is doing much, much worse. you see the approval rating for congress. it's only 14%. 81% disapprove of congress. that is epically bad and it shows the president has a bit of a strength in hand as he goes into the budget talks. so does this final number that i want to run through, which is if the budget talk fails, the debt

limit is not raised and if there are consequences for the united states not meeting its obligations, who would you blame? 45% say they would blame republicans in congress. only 33% say they would blame pb and democrats. the bully pull pit has some value. democrats have a better image with the american people than republicans do. but nobody has a great image right now. and when we asked people, joe, the recent budget talks in washington over the fiscal cliff do they make you feel more confident or less confident about economic recovery, by three to one, they say less confident. and so we do have a situation that many people on the hill have observed that right now washington is a bit of an anchor on economic expectations. >> that congress number, john, is a bipartisan number for congress. add it all up. >> right. >> like harry reid's great disappointing act. harry reid is not very popular

at this point, either. hiding division among democrats by turning to the world's least conservative body. they haven't done anything and no budget. that's what's interesting about that great congress number, you add up people who hate congress from both sides. >> yeah. 81% is a big number. that is the one thang that ordinary americans and both parties, independents, as well, agree on. >> not just the nasty tea party republicans in the house. anyway, john, thank you. your haircut looks good. >> thanks, man. >> you're welcome. and duke looked good yesterday. >> i was going to say, there are some of us who were not watching the oprah interview because we had important things to do. >> i had to wash my hair and my nails. >> you guys get a second chance tonight. >> like him. >> like you're giving him. >> go ahead. coming up, the story behind the drop in intel shares, we're going to talk about it. plus, we're gearing up for ow newsmaker of the morning. we have morgan stanley's ceo

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>> announcer: which hotel received the 2013 traveller's choice award for the top hotel and top luxury hotel in both the world and u.s.? four seasons resort kaupulehai, hawaii. >> quarterly resorts -- >> joining us with some analysis, raymond james. good morning to you. >> good morning. >> so let's go through this. off big time, down 27% in terms of their net earnings. how do they get it back?

>> well, this year is not that much of a problem. i think in terms of low growth is reasonable. the problem is that the forecast for capital expenditures of 13 billion is massive. it's 20% higher than the levels they saw in 2011. nearly 20% above the levels that they saw last year. we don't need this much capacity. i think investors will be rattled over this amount of capacity and given the macro environment, given the cannibalization that tablets are doing with the expensive notebooks and the road map that is questionable. >> is there a road map that you see that gets them into the tablet and mobile space in a better way? you look at what is happening to the stock of arm, look at the stock of qualcomm, and these guys are nowhere in the same arena. >> that's a good question. they have the road map to get in. will they have a position of dominance? being the same is not going to be enough, particularly given a

lot of oems over many, many years being accustom to them being basically sole source or a dominant proprietary source when you have an alternative where you have a multi source solution, some suppliers that use their processing from a company called arm. so it's going to be very tough. you have to have significant advances for oems to use your product. i don't think they that. >> what does this say about hue yet pack yard? what does this say about the news about dell with a potential buyout? i assume what is happening at intel is happening there and possibly in a worse situation. >> i don't cover those companies, but i would say generally the incumbents, the old school type companies that we saw in the '80s and '90s, the business environment is changing, the models are changing. there was an interesting conference in silicone valley this week called the open

compute summit where in the data center aft of the trends are for a neutral vendor knew translane. they don't care about the processor, they don't care about the brand name any more, they want to use multi sourced nonbrand solution s in the data center, which is an important area for intel in the future. all customers care about is performance per watt, per square foot, per dollar. they don't care about the name brand. so all of the incouple be kucume in trouble. >> it seems so obvious now that no one cared about the brand that's in the computer. but for years, intel spent millions trying to convince us that intel inside was a critical piece to this and use that as a way to get in with oem. do you now look at that and say the entire strategy back fired? >> yes, it did. i think they tried.

i think that was a good effort. but it's -- you know, today, you see microsoft late last year introducing a new series of -- a new platform based on arm called windows rt. as a strategy to go after the tablet and smartphone markets. the story right now is mobility. battery life for the consumer. in the data center, brand is not working for several years. i was at the consumer electronics show last week and there is not a lot to see from intel and it's going to be very, very tough. and branding and proprietary and building big, big fabrication facilities is not going to on solve their problem. that's the big issue today for investors as they look at that massive amount of investment that they're making in capacity. >> we're going to leave it there. we appreciate your perspective this morning. it's an interesting story. i don't know if it's going to

get any better anytime soon, but thank you for joining us. >> we're waiting for general electric results. i'm not sure wa to think how these are going to be this quarter, given that immel talked about the fiscal cliff. usually it hits right around 630. there it is. rge, it's reporting an operating profit of 44 cents a share. that is above expectations. which were at 4 cents. always the revenue number is the one that analysts say, revenues are -- look at that. it is above. it's above. that is a victory for general electric. analysts or nay sayers report to revenues when they're light and they infer or imply that they got their -- where the quality of the earnings isn't as good. but in this case, revenue is above expectations.

and we are talking about 4% revenue growth, which doesn't sound like a lot, but organic growth in the industrial segment was up 8% for the total year. operating margins expanded. 120 basis points year over year. it's a record backlog of 210 billion. ceo jeff immelt out with some comments saying that the outlook for developed markets remains uncertain, but we're seeing growth in china and resource rich countries. and with our largest backlog in history and a substantial amount of cash generated by our businesses, we have great momentum going into 2013. industrial segments profits were up 12% in all the segments, all industry segments had positive earnings growth for the second consecutive quarter. and five of the seven segments achieved double digit earnings growth. ge capital progressed, it says here, with the strategy of a small and more focused financial services business.

but it's a pretty nice -- a pretty big contributor at this point to ge capital earned $1.8 billion in the fourth quarter, which was up 9%. and that helped. i mean, if you can earn -- remember in the couple of years ago, ge capital was not contributing to at all. >> in a negative situation stapt. >> right. so at this point, that's pretty good. any quick comments? >> yeah. as you look at this quarter generally speaking, we're expecting the financial service ises are going to be sort of the star, if you will. so looking at this ge quarter, it look like a clean quarter. top line, everybody everyone is focused on that. margin, guidance, they checked off all the boxes. we thought financial services were going to be pretty good. they were. i guess the surprising strength was the backlog piece. on balance, i would say this was a pretty successful quarter. >> jack is with us as you always

is. he's been an owner, a long time chief investment officer at harvard advisory. he's also got a rise above pin on today, i'm told. we need those. we need to keep hitting on that. jack, i know you probably are happy because of revenue, but are you happy that out of the 4.7 billion, 1.8 billion was in ge capital? are you okay that this is a large part of the profit coming from ge capital? >> they're working that down, joe. 55% industrial, about 45% capital and their goal for 2015 is for that to be 65/35. they're working it down. it's becoming more of a core. they're going back to the core component of capital which is loans and leases that support their sales. so i think that improvement is tangible and is they're on

track. they're ahead of track. ending net investment, i didn't hear that. i bet it was around 4.20. they were over 600 back in 2007 or '8. so this is a really good number, joe. a little surprising after the december 17th analyst meeting, which was, you know, they brought expectations down a little bit. >> yeah. mark. that's what i was talking about. that is where jeff was talking about the fiscal cliff, wasn't he? >> yeah, yeah, he was. and, you know, expectations since the last time you and i were sitting here have gone from 47 cents to 43. so they beat at 44. but still three cents below what the street was looking for 90 days ago. >> i'm trying to remember, you know, it's molded together. when was the last dividend hike? >> third quarter of last year, joe. >> third quarter? >> yeah. >> of 2012. >> yeah. >> okay. so they usually do it in the third quarter. so we're not looking for another hike. it's yielding about 3.6%.

and it is indicated up a little bit today. so as far as the outlook, what are we looking for for the company to say about the rest of the year? >> you know, i think the outlook has improved just in the last, obviously, 30 days. since december 17th analyst meeting. i would expect we're going to have revenue growth of a couple of percent, organic revenue growth of mid single digits, wind is going to be a difficulty for them next year, but currency should slow down. currency is quite a head whipped last year. earnings can probably be, you know, 165 to 170. and that would -- the telegraph the dividends are going to increase commensurate with earnings. we should get a 10% dividend increase. and hard to gain when that might be. in 2010, 2011, joe, they did two

per year. right. coming back from the -- i forget how much it was cut in 2009 or 2008. cut -- >> well, dramatically. it was originally as high as 124. remember those days, joe? >> yeah. now it's back to 76 cents at this point. so it's making its way back. and the stock so far looked pretty good today. we'll keep an eye on it. we'll keep an eye on it, jack.w as we used to spend on -- >> obviously. >> on ge. now, comcast comes out today. you're going to see -- no. we could spend an hour on that. >> it's a proxy for the whole -- >> whole world. the global economy. >> the only original dow component left. makes big engines. does a lot of important stuff. jack, thank you. so it makes sense that -- >> thanks, joe. >> we'll see you. we'll see you next quarter,

probably. >> you bet. still to come on squawk this morning, from one earnings report to another. at 7:15 eastern, we've got the big newsmaker of the morning. morgan stanley ceo james gorman will join us on the set from this table with earnings and outlook. but first, investment in the future. the man bringing together private and public funding to find the next big thing. we're going to welcome steve blank to the set right after this break. this is america.

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welcome back to "squawk box" this morning. our next guest was a serial entrepreneur, but now he spends his days teaching others to start companies. the author of "the start-up owner eps manual." you made $329 million selling your last businesses. >> i was in eight start-ups altogether in silicone valley. >> and you sold that in 1999? >> the business was sold and i retired one day before it went public. >> easier today to do this or harder? >> usually easier today. >> even given all the conversation we have about what's going on in washington, the regulatory environment, all the issues in california frankly where you live now? >> there's actually two economies in this country. there's innovation. in san francisco, silicone valley, you can't hire enough

people. whereas in the rest of the country we're looking for jobs. and the second more important thing is we've now cracked the code for entrepreneurship. we know how to make start-ups fail less. we know why start-ups are different than large companies. >> you feel like you're exporting your students to other countries. i assume you have lots of students who come here to this country, they sit in your classroom and learn all sorts of things about the model you're talking about. instead of staying here and starting a business, they go elsewhere. are there ralt of examples of that? >> i think our government immigration policy is exporting. i think 95% of these students would love to stay in the u.s. and create jobs. i've always been confused. i'm not smart enough to understand why we don't want to keep them in the u.s. and hire american. >> is there a great example of a student who has gone through your class or gone through

stanford has created 200,000 or 300,000 jobs in another country and we can point to it and say, this is why this doesn't work? >> i'm sure there are, but they're not spending me post kalt cards right now. >> and in california, seems to be one of the most screwed up states and everybody seems to be staying. there are people going to texas and other places, but they still stay. >> it just might be that the common wisdom that it's a screwed up state is simply wrong. it's a screwed up state if you're in the construction industry or if you're in the real estate business. but if you're in the innovation business, the state is a great state. one of my other jobs is a public official in the state of california. >> what's your role? >> a coastal commissioner. and we're spnl for all 11 100 miles of the coast.

>> so i assume business doesn't like you. >> developers hate us. but others love us. >> you've got nice traffic out there. you've got plenty of problems in california. >> this is not that there's no problems in california. this is, in fact, that california actually, instead of being the worst model in the united states for growing an economy has some segments that are pretty good for the united states. overall, there's some serious issues with the amount of money you're raising and the amount of money you're spending. nobody wants to see i'm modeling myself after jerry brown. >> jerry brown is just -- >> or the epa or -- >> i know. you've got plenty of companies leaving california. >> let me just ask you, is it the policies that california has created that allowed all of this innovation to flourish or is it literally by happenstance that this happened? >> i would probably say the latter and we haven't screwed it

up. you know, you can screw up purely clusters pretty easily in the 1970s and '80s when i came out to silicone valley, it wasn't clear whether it was going to be silicone valley or boston that would be the entrepreneur center of the outside. we had equally crazy people doing risk capital. they were in boston. the bankers ended up acting like bankers. in silicone valley, they ended up acting like pirates and that kept the cluster going. >> steve, thank you for joining us. >> thank you. >> good to see ow this coast. quick break in and out, check out the shares of general electric which are indicated slightly higher this morning about 40 cents on the ask, you see there. 22.52 bid, 21.70 ask. in the next hour of "squawk box," newsmaker morgan stanley ceo james gorman joins us on set to talk earnings and outlook. the wing and a fractured beak.o

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welcome back to "squawk box." lance armstrong coming clean to oprah in a much hyped interview that aired last night. brian shactman joins us in chairs to break it down. >> i'm a little nervous about this one. joe is fired up. >> did you see how close that was? >> that was close. >> i'm making the point, you know, that these poor guys that -- >> didn't have $100 million. and i said, and who weren't dating sheryl crow and had access, that might have been a negative. dating her twice. >> for people waking up, we know he acknowledged right off the top, oprah asked him direct questions. yes, i did this. yes, i did this. but i want people to get a sense of his body language, his

sincerity and just what you think of what he did, guys. just have a listen. >> -- the sport. but just the last thing i'll say is that now -- now the story is so bad, and so toxic, and a lot of it's true. >> you said to me earlier you don't think it was possible to win without doping. >> not in that generation. and i'm not here to talk about others in that generation. it's been well documented. >> mm-hmm. >> i didn't invent the culture. >> mm-hmm. >> but i was in the culture. and that, that's my mistake. and that's what i have to be worry for. and that's what something -- and the sport is now paying the price because of that. and so, i am sorry for that. all the fault and all the blame here falls on me. but, behind that picture and behind that story was momentum. and whether it's fans or whether it's the media, or whether -- it just -- it just gets going. and i lost. myself in all that.

and i was used to controlling everything in my life. i controlled every outcome. in my life. >> you've been doing that forever. >> yeah. especially when it comes to sport. i made my decisions, they are my mistake. and i'm sitting here today to acknowledge that, and to say i'm sorry for that. >> some equivocating. i think it gets back to a couple things, joe. you know the lives that were ruined. just say you're sorry and then move on. >> but the deal that he -- >> right. >> -- denied things. maybe that's -- maybe if you think you have a better chance of convincing people if you're a total asshole about it? maybe that's the way he did it. because he was a -- you know, he was miserable in the way that he defended himself. >> right. >> and now we know all along ishs -- we knew it then though. but that's just so annoying. >> do you think there's any chance of redemption for him? in the world of sport? in the world of sponsors? livestrong came out with a statement last night. i didn't think it was the nicest

statement, either. i thought maybe they would, because he's been so close to them, say this guy's awful. and i don't think they really did that. >> well, you have the question of, you know, why is he doing it now? and is it for truly virtuous reasons. he said he did not dope in 2009 and 2010 when he came back. and some people say that's because he wants to make sure he's outside of the realm of statute of limitations. because he could still get in trouble if he said he did then. i think that in terms of repairing his image, he feels, if he was clean in '09,' 10, came in third in one of those races and can somehow get cleared to do triathlons, becomes an elite racer and is tested 100 million times and is clean, he feels like he can show he's an elite athlete and maybe he can go one step forward. people we talk to inside the industry, there's no chance of him ever making a marketing dollar. >> he needs to give it back. >> well, he loses his whole $125 million fortune is the next question. >> sponsors. >> brian shactman, thank you for this. coming up our newsmaker of the morning, morgan stanley chairman

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morgan stanley reports quarterly earnings. get a first on cnbc reaction to the numbers and what's ahead for big banks from ceo james gorman. and what's in store for your portfolio? market insiders barry knapp and rebecca patterson are on the money. plus, "squawk" goes off road. >> it is filling. >> whoa! >> scott wine on building mobility and offering a path for profits, a second hour of "squawk box" begins right now. >> good morning welcome to

"squawk box" here on cnbc. i'm andrew ross sorkin. along with joe kernen. becky is off today. take a look at the futures. see how the market is setting itself up for the morning ahead of this trading day. if we could flip that across the screen it might help. there we are. dow looks like it -- it's all virtually up across the board. up, down and sideways. let's get you through some of the morning headlines. general electric, this just happened moments ago in the past half hour, reporting 44 cents per share for the fourth quarter. that's one cent above wall street estimates. revenue also beating forecasts. and ceo jeff immelt saying the company is well positioned to achieve double digit earnings growth this year. also the treasury has unveiled new measures aimed at making it more difficult to evade taxes. foreign financial institutions are going to now have to report to the irs if any american taxpayers assets total $50,000 or more. and china's economy posting its slowest growth in 13 years in 2012. though there was evidence of a year-end rebound. china's gdp was up 7.8% last

year and was ahead of the government's 7.5% target, which seemed in doubt just a few months ago. joe? >> treasury secretary tim geithner telling "the wall street journal" that the economic recovery is entering the home stretch. hopefully that doesn't mean that it's going to -- it's almost over. geithner says, in his words, i think in the recovery, if you do basketball, we're in the early part of the fourth quarter. he also says we are through the big -- i think in the bad -- we're towards the end of the -- >> right. >> of coming back. and now we're going to be back all the way. >> he just likes to tell obama that they were in the second inning, always. every time obama would ask him how things were, he'd say the second inning. now he's moved to basketball. >> the fourth quarter, the end of the game takes forever. i mean it really does. every -- all the time-outs. oh, my god. the big adjustment in the housing market is what beer talking about. geithner steps down as treasury secretary. next week. >> okay.

boeing says it plans to keep building its 787 dreamliner while engineers try to solve that battery problem that's grounded most of the fleet. it's not clear how long the investigation is going to take, or the fix. u.s. safety officials are in japan now, joining a probe in that country, into the now grounded dreamliner. they're looking at an al nippon airways jet that had to make an emergency landing earlier this week after a battery warning sounded in the cockpit and the pilot smelled something burning. >> smelled something that smelled weird. >> smelled weird. >> we decided it wasn't necessarily smoke. >> they said it was a -- they showed a picture. it was a discolored battery. >> and leaked -- >> and weighed 11 pounds less than it was supposed to. >> because it was leaking -- batteries have i guess lithium, too, inside. algeria's hostage crisis continuing this morning. bp says a small number of employees remain unaccounted for and that the crisis at its natural gas facility is ongoing.

prime minister david cameron told parliament this morning that the attack by armed militants was large and well coordinated. there are still widely varying reports about the number of casualties involving both the militants and the hostages. the s&p, meanwhile, shifting gears, is aiming for 1500 after finishing at a more than five-year high on thursday. earnings are likely to be influential in today's trading. we heard from dow component general electric earlier this morning. last i looked, it was -- it closed at 2130 and it's at 2190 now so almost a 3% move. that will help the dawe. we're going to hear from morgan stanley in just a couple of minutes. joining us is barry knapp. head of u.s. equity portfolio strategy, and rebecca patterson. chief investment officer at bessemer trust. and do you even use dollars -- i mean you have a whole basket of currencies that you just carry around with you to pay for your bills, right? >> yeah, yeah, yeah. >> you know so much about it. on any given day is the best value, you'll use that.

>> i keep some zimbabwe trillion dollar notes in my purse just in case. >> i won one on a golf course. it was worth 17.5 cents. i think. we're going to talk to you about the yen in a second. let me start with barry. erda described it like this, at the beginning of the year, the fiscal cliff gave us that bump. when it was at least kicked -- the can was kicked down the road. so on the dow, then the market sort of took a step back. but yesterday the claims number, and housing starts and some other things are starting to make it look like maybe the economy is justifying higher stock prices. is it? >> no, i think your observation is correct. i mean, clearly the most bullish case out there for the u.s. economy in 2013 is related to the housing market. and then all of the externalities that get created from that. so for example, housing related construction is down 2.3 million jobs peak to trough. we've only gotten 100,000 of those back. so if this year single family

starts were to pick up, and you start getting construction employment related to that, that would give you another boost in terms of labor income and employment that would take the economy to another level. >> that's the housing start number and the claims data. those are related. >> absolutely. that's how people are viewing it. now the problem with all that is, what the experience of the last few years, in europe last year in particular was, you hike taxes. everybody thinks it's behind you. the italian stock market, for example, was soaring at this time a year ago, turns out that those taxes had a much more deleterious effect on consumption than people expected, and there was a price to be paid for that, and the italian market ended up plunging in the second quarter. so the question here is whether consumption slows decidedly in the first quarter as a result of the payroll tax cut, and the upper income tax hikes. the $250,000 of drag, right? so we just haven't seen that effect yet. >> all right, rebecca, i have two for you. number one is that i'm reading

that the euro crisis this year is going to go on the back burner even though nothing's been settled. it just seems like people aren't as concerned about it. so, i guess that explains the euro's move. and then, this news out of japan that kelly's all -- talks about all the time. >> she's teed up on. >> she's very teed up on that. and reading some of the stuff that abe is getting accomplished, it is different. i mean they're going to do -- they're going to -- >> they're going to out-fed the fed. >> exactly. and you know, they haven't had -- do you remember the last time they've had 2% inflation? >> twice in the last two decades. briefly. one on the back of a tax increase. >> just really brief. >> they've flirted with 2% and that's come back -- >> you think they can orchestrate that? >> i'm dubious for now. but if you have a better u.s., a quiet europe, a better china, there's more hope relatively speaking that you could get enough global momentum, because japan at the end of the day, still is a very open economy. so, that could help them. look we've been adding exposure to japanese equities in our

portfolio. we've been hedging our yen risk since october. i think it might have some momentum. but japan still has a debt/gdp ratio and a political system that makes the u.s. look functional. i mean they make us look good. if we want to feel better about ourselves we should just look at japanese politics and debt. so i'm still cautious that this thing really has legs. that we can see this rally in japan and the weakening in the yen go for quarters and quarters. but a couple more months. i think that's possible. maybe a little while longer. >> in making those remarks you also talk about china's better. >> right. >> things are better here. europe -- so for here -- >> here. >> are you more bullish? >> i want to be. i really want to be. i mean, you do have as barry said the housing story. we'll see how the tax affects the consumer and affects housing. but housing looks like it does have some structural momentum behind it. auto sales are improving. consumer sentiment will get some out this morning, university of michigan. took a step back in december. we'll see what it does now. my wild card is the corporate

sector. and we've gotten philly fed and empire state fed data out, business survey sentiment in the last couple of days, and the ford looking indicators are getting worse, not better. so if you look at capital expenditure plans, cap-ex plans, if you look at new orders, they're getting worse. and before we can get, i think, more bullish about the u.s. economy, we need to see more momentum coming from the corporates. it can't just be on the consumers. and i don't think we see it. >> how long does that last? when does this hit? >> the better corporate? >> midyear. >> midyear. >> there you go. >> you agree with it? >> right on time or direction. he's taken the time. -- >> no, because cap-ex is so low, corporate savings are so high that take, for example, the technology sector. and everybody's adding storage. from a enterprise perspective. a year ago emt's revenues going at a 20% annualized rate. by the third quarter they're down 1%. so there's a huge cutback in capital spending last year because of public policy uncertainty. if that just were to stabilize you get a maintenance level back

and then you start getting into the longer term argument about manufacturing competitiveness and the energy boom, and some justification for a further improvement as you get out through this business cycle. that may be a far, you know, that's way out in the future. but i do think by midyear, you get capital spending to stabilize. and for us that's the most interesting part of the market. if there is a good trade in cyclical stocks this year, it's in capital spending sensitive stuff, not housing related stuff. >> but i think we'll have time to prepare for this. we'll see it in corporate guidance. we're going to see it in business sentiment surveys. i would rather wait, see at least a hint of this coming, and then position -- >> i was going to ask, would you be buying now to do it in advance of this? >> we upgraded tech because we thought tech spending would come back first, and the numbers would have been marked down the most. so, we'll see how intel behaves, for example. now intel is a little bit of a special situation because of the tablet pc dynamic. >> i'll say. >> but ibm next week -- >> intel not behaving too well

today. >> i know it is. >> are you buying intel? >> i -- i'm not going to make that specific call. >> right. >> i like enterprise tech. i don't think intel is in the sweet spot of that at all right now. so probably not. but, for me, it's more the enterprise size. it's the oracles, the ciscos, and the emcs of the world that should start to stabilize. i don't think the results will be good this quarter at all. the question is, whether this is the trough. >> you make a ge? >> i think that -- that's a problem. keep talking. >> i thought that the jechlt results were okay. the problem with the big multiline industrials and the reason we couldn't upgrade those yet in part is because they're trading way above midcycle valuation levels. so everyone sort of priced in, okay, china's coming roaring back. and, you know, the u.s. is going to stabilize, and they're just -- they just don't represent value at this point. >> all right. >> so tough call. >> all right. guys, we'll have more. up next earnings from morgan stanley.

well that famous guy over there. do you see him? he's over there. he is a famous guy. the debonair kind of euro type guy isn't he, gorman? >> australian. >> aussie? no kidding. all right. from europe at one point. but most of them -- mostly criminals back then. anyway, ceo we're going to speak to james gorman about the quarter right after the break.

all right. welcome back. morgan stanley reporting quarterly results. so it's a huge beat? >> it's a nice beat. >> the estimate was 27 cents. if you talk continuing operations at 28 cents that is not the number you're using, though. >> no.

look, it's 45 cents is the actual number versus 27 cents which was the estimate. there is, though, a tax benefit that's built into that. so if you exclude all of that you're down to 37 cents but that's still a 10 cent beat over the overall estimate and also a beat on revenue $7.5 billion versus the estimate which was about $7.1 billion. looks like we had a slight miss on fixed income. $811 actual versus $1.2 billion expectation. virtually across the board on everything else we do have a beat. and a first on cnbc interview. it's very rare where we have the ceo on the set as the earnings are coming across. and here he is, chairman, ceo of morgan stanley, james gorman. we're happy to have you here this morning. >> great to be here, andrew. >> so the big question, i think about morgan stanley, more than any other, is when you can get back to an roi of 10%. that's been something you've talked about in terms of an intent but how long is it going to take to get there? >> well, firstly, just looking this quarter, which was a great

start, was a nice beat. but what i cared about was so many of the cylinders are starting to work. and this gets to the path of how we get to the 10% roe. we had banking equities had great quarters. wealth management, this major investment we've made in smith barney had strong quarter revenues but had a 17% pretax margin. so how do we get to the r.o.e.s? how do we take this moment, this pivot board? firstly buy the rest of smith barney. deliver on the margins we talked about. >> when do you buy the rest of smith barney? >> we've obviously got an application in now. we'd like to accelerate that. it's up to the federal reserve and there's a process we need to go through. worst case is we'd be doing it over the next two years. but we'd like to accelerate that. and it remains to be seen over the next few months. >> strategically, let's just talk about smith barney, because this takes you in a completely different direction ultimately in so many of the other institutions on wall street. why do you like that business? >> morgan stanley's been in it

since 1997 when we americaned with dean witter. it's been a long journey. the problem was we're always sub scale and we never really ran it so it was a fully integrated part of the total firm. i like it because it's like railway tracks. once you put it on the railway track it will run. there will be some friction from time to time. it will slow down, accelerate, but it will always deliver a basic, steady return. >> was phil purcell right? >> i think everybody was right. dick fisher and phil purcell together negotiated the deal. what we didn't do was take it -- this industry is built on scale. by buying smith barney we now have tremendous scale. >> you have incredible leverage there, because the individual investor is skill quiet. >> that's right. >> financial advisers. i was one. i know of them. they're singing the blues. >> right. >> still, they're just hoping for another period like the '80s, and '90s. and we've had 10, 12 years of really where i don't think individuals could be any less excited about the prospects for the stock market right now. and that's going to change, don't you think? there's incredible leverage.

>> joe, and the interesting thing is, and obviously i watch this very closely for a long time, the individual investors haven't pulled money out of firms like ourselves. so it isn't a total despair of the markets, it's a confusion and uncertainty. the money is still there. they're waiting for good ideas. i said to somebody the other day, we have $1.8 trillion of assets. on any day 5% of that is looking to go to work. $90 billion is sitting there waiting to get into the markets. so if we see some confidence coming through from the political sector. >> right. >> the global economic recovery, this thing has legs. >> can you compete in the fixed income world? >> oh, absolutely. i mean -- >> what's the strategy around that piece? because that's been also a big question mark for morgan stanley. >> well, a couple of strategies. one, through a series of decisions we made over the last ten years we have a lot of track capital in that business. and it's one of the things i'm going to talk about on the earnings call. we have worked very aggressively to bring down what i called our

risk weighted assets which is what your capital is based upon. and, already we're at the level we had hoped to be by the and of 2013, again i'll talk about that on the earnings call. so number one, put less capital to work in the business, number two, focus on parts of the business that are flow driven, are less structured, and more links to everything else we're doing as a firm. example, we did about 500 million in fixed income underwriting in this past quarter. we manage a portfolio of fixed income securities of over $300 billion in our wealth management business. >> this quarter you missed on fixed income. it was $811 million versus 1.2. what happened? >> a couple of things. firstly we had a terrible quarter in our commodities business. it's been a great business for a long time. it was the worst quarter since one of our quarters in 1995. it was an aberration that was a lot of activity with the storms in the northeast. it affected us, and it will bounce back from that. >> okay. >> the second is actually a good issue, and i think you guys have

talked about an adjustment and our cva which is the difference with the way our spreads interact with our counterparty spreads. as our spreads came in so dramatically this quarter it affected our cva to the tune of $700 million. can't repeat itself. your spreads can't go to zero. >> last year you went through a pretty harrowing experience with the rating agencies. >> yeah. >> what is your cost of capital for overnight funding, and how does that compare to what goldman sachs and jpmorgan are living with now? >> yeah, i don't know what t the -- i don't know what our compare -- i don't sort of follow or try and compare what others are doing. and you're right it was a harrowing experience. the good news is we came out of it with a better outcome than what was anticipated. the bad news is we had to endure five months hanging out there in the marketplace before we got that. >> right. >> interestingly, the day before the rating agencies, our credit spreads were 270. today they're 170.

so despite the downgrade which we incurred our spreads are coming in 100 points which is the market saying we believe morgan stanley's credit. >> right. >> one of the big issues that's been in the news related to morgan stanley recently has been compensation. and the compensation program that you've put in place. which includes paying people over three years. people talk about it as an iou. can you competitive relative to the other institutions that aren't necessarily pursuing a similar plan? >> oh, sure. and i think the -- listen, everybody's got their own way of handling compensation. we have to balance, as everybody does, between what our shareholders are getting and what we're paying ourselves. >> what's the most anybody can get paid this year? >> well, this -- i'm not going to lay out somebody's compensation, but there are some very sporty compensation packages on wall street still. listen our employees have done a phenomenal job working through a very difficult environment. we would love to be in a position, and will be in future years, where the comp will reflect that and will be going up in those environments. but we had to adjust to the

environment we're in right now. that's what we're dealing with. >> where would you say the net flow is now between morgan stanley brokers and merrill brokers right now? who's winning? are you -- you added more? have they -- and are you -- are you in an aggressive mode right now in terms of offering them increased compensation to come to morgan stanley, or -- >> i'm going to give you an answer which may be a little counterintuitive. the person who's winning might be the one who's actually losing on net flow. in other words, there are some very aggressive recruiting packages out there. anybody can go out and spend money -- >> in the past -- >> spend money and buy talent. do you want us just buying talent? >> i don't know. where are you now in terms of totals? >> we're over 16,500. i forget exactly. i think merrill -- you know, honestly, i don't even know. >> ubs is a big player. >> well, ubs is very different. they're a global private bank doesn't have brokers, has private bankers. the domestic business which is the old payne weber business is probably 6,000 or 7,000 i think.

>> so then you have wells fargo. >> the three real monsters are merrill the wells fargo, wachovia, a.g. edwards conglomerate and the morgan stanley, dean witter, smith barney, legg mason conglomerate. >> did you just say merrill is stealing your guys by giving them compensation? >> no, no, no. i don't follow those. but the ins and outs have been pretty modest. the whole recruiting world has appropriately died down and i think management of these companies are being more sensible about it. frankly there's a lot of client disruption. you know, we recruit your financial adviser you've got to repaper all your accounts. so it's slowed down. >> -- the reason why you're moving. >> it's tough. >> you cut 1600 people or you're planning to cut 1600 people. is that the end? is there more to go? if you're an employee of morgan stanley and you're watching this interview right now what do you have in store? >> well, we actually, andrew, we did cut -- it was last week, it was earlier this week and last

week, and it's a really unpleasant thing to go through. nobody takes any joy from going through a right-sizing. we're down 6,000 actually from the first of january of last year. so in a little over 12 months we're down 6,000. and i believe we're done. th where we are as an mfortab organization. and you know, we'll obviously, if the markets completely collapse you'd revisit that. but from what we expect and what we're seeing we feel good about the structure we've now gotten. we're looking forward, and that's part of what i'm going to talk about this morning. we're at a pivot point as a company. we have to deliver the results but we have it within our grasp. >> dan loeb recently took a stake in the company which probably is a good thing in many respects because it's a signal that he believes there's value in the company. but he's also gone after people like roy bostock, and he made it clear he may want some changes. have you been in communication with him? >> yeah, i called him as i do all our major shareholders and welcomed him. i said i was delighted that he

thought it was a $40 stock, because he shared the confidence that management has. and i think we're doing a lot of the things that -- the reason dan has come in the stock to the best of my knowledge is he believes the company is on turnaround and he was excited about it. we have -- our board since i joined the board three years ago and became ceo and chairman, we have had a turnover of 6 of our 14 directors. roy happens to be retiring this may, so we'll have 7 of 14 directors turn over in that three-year period. so, i think dan's interest and ours are greatly aligned. >> in the money you're having all your guys manage, would you strongly urge them to just lighten up on bonds, and go big in the stock market? >> i'm bullish on the market. i mean, but i've been bullish, joe, for about four or five months. >> four or five months. okay. 12, 13 years? >> no, no, no, the last four or five months. >> is it really bullish?

new all-time highs? >> i think we can still move higher from here. let's look at the big macro. u.s. economy is recovering. the u.s. consumer has delevered, has got more confidence in the system. we're past the election. the u.s. economy is recovering. that's unmistakable. the speed of it still remains to be determined. but we're recovering. china leadership happened. china will support the growth in that economy and they will drive domestic demand. europe is not getting worse. and there are signs of green shoots even in japan at this point. >> all right. >> and then you've got all the brazil and indonesia which are still exciting stories. i feel good about where the world is heading. is it on a bull streak? no. but is it on a firmer footing? yes. as a long-term investor i care about firm footing. >> some day we will go through 15,000 on the dow, and then 16,000. and then 17,000. >> yeah. >> i mean i just wonder is that within the next couple of years? i mean it's about time. it's been -- we went from 800 to

14,000. and we haven't moved from 14,000 in like 10, 12 years. >> my father always says a journey of a thousand miles begins with a single step. >> it's going to come some day. >> let's just take it one step at a time. what i feel good about is positive momentum, more broadly. we're a long way from calling this to be, you know, we're not in a raging bull environment on any stretch. we've got a lot of issues in this country we're still working through. but there's some positive momentum. >> what are the other pieces of this road map that you're going to lay out later today? we talked about fixed income, we talked a little bit about smith barney. >> there's really five of them. buy the rest of math barney. which immediately is incremental to our capital, because we've already put a lot of goodwill against the business, so we spent very little in capital and pick up 400 to 600 million dollars a year in earnings this year and next. secondly, keep driving the margins. i think the fourth quarter gave evidence that that's got real legs. thirdly, bring down the risk weighted assets and realign our fixed income business. fourthly, we've got an expense

program which we're going to lay out, which is pretty aggressive. but we feel good about it. and finally -- >> an expense program meaning you're going to lower expenses significantly? >> from this point. >> how are you going to do that? >> we took $500 million out last year. we have a number of consolidations that we're putting in place into our major regional centers. we've taken a lot of action because of what we did last year, the benefits number has to come down. we're 6,000 people smaller than we were. >> can you do that without more reductions in head count? >> i'm saying because of the reductions. absolutely. no at current head count levels. >> okay. >> and finally, we see there are some unique revenue things, away from the markets, so i'm not counting anything in the market environment. unique revenue things that morgan stanley can capitalize on. i give you one example. we just set up initiative between wealth management institutional securities. teams got together. came up with i think 35 different ideas to drive revenues. we've got a bank, we're going to be sitting on $140 billion of

deposits. it will be, i don't know, 10th or 11th bank in the country sitting inside morgan stanley. the loans that our clients use at institutions they could be doing through us, it's extraordinary upside on that. >> you are -- first time i think you've made the trip out here to appear on "squawk box." and your stock is going to trade at a new high, 52-week high. i don't think that's a coincidence. i know it's new jersey and you need to come over here, 2133 you have not been there in the last 52 weeks. coincidence? >> actually, truth, joe, i was here the day i joined morgan stanley. >> you were on "squawk box"? >> i was on "squawk box." >> i must have been out. >> no, you were here. i remember some of the things we talked about. >> you know what, i was thinking -- >> i came to this studio. >> i was still listening to fleming then who said he was the brains behind the operation. he still says that. >> he was still at merrill lynch. >> listen, it's not a coincidence. >> it's great to see you here.

>> here's the story, we had a stronger but not perfect fourth quarter. a lot of the legs are firing. not all of them. we've still got a lot of work to do. but we think of all the digging and shoveling and cleaning up that we've done the last few years, that's done. now we get back to the fun stuff, which is running the business. and that's what we're excited about. >> just owning all of smith barney and then that combined with some day the market headed to new highs, and then actually gaining traction, that's a lot of leverage. >> that's a lot of leverage. >> andrew loves m&a. you like all the nuts and bolts of the investment banking. >> but there's the broader -- >> i think about the financials. when the market gets going. >> but it will get going. you look at the m&a franchise. you look at rates and credits, these are all long-term -- >> -- gets better. >> nobody can time this the next several months. >> i've got to ask a nuts and bolts question because so many people sending in an e-mail about this specific issue, which is facebook stock.

to $30. >> yeah. >> how do you feel about the ipo now, coming in on close to i don't know a year, eight months later, i know you paid a fine related to it. i know there's still investigations and other things going on. >> almost done with the interview. we were almost out of here, and this is the last -- you know you have 100 people who are sending in e-mails saying you've got to ask him about facebook. so here we are asking him about facebook. >> we were just, right there. >> listen, remember i did the interview the day after. and you know, i thought personally the launch of facebook was historic. what we created, what facebook has created, is a $60 billion company. everybody forgets that. it's a $60 billion company. they've done -- that is one of the great innovation stories and that's the kind of story that makes this country great. so the main event, the substance is extraordinary. the particular offering, the day of it, the messup on the exchange, all of the issues associated with that, i said then and i stand by it, i thought it was as bizarre as the

projections the day before it were that the stock would go to $80. both were equally ridiculous. it's now normalizing. it's back in the 30s, the management and the staff of facebook deserve that. the investors deserve it. and i think it will keep recovering. it's a great company, great american story. >> you can see there was that the public wanted it at that point. >> they did. >> you could see -- >> oh, no, absolutely. >> you got closer and closer. i don't know, some revenue issues, you know, came to the fore. but some would argue, i mean, you do want to do as well for the issuer, for facebook as you -- i mean that's part of an underwriter thinks. you want to -- you want everyone to do well, obviously. but it's a fine line to try to walk. >> one last thing on this. >> yes. >> a lot of people, you know, they were critical during the process. i couldn't be prouder of our technology team. they are world class, and i believe they led or co-led the next seven deals in that space that were done. >> well it hasn't had a -- hasn't had a -- >> they're the real deal.

they're the real deal and i'd use them every time. >> you know how crowds, people wanted to buy more apple at 2k7s00. and -- >> that's true. >> now we'll see what happens with that, as well. >> all right. >> it's great to be here. >> mr. gorman, thank you for coming in. >> sorry i forgot. i didn't know you the first time. maybe that was it. >> and i didn't know you, joe. i said who is this guy asking all these questions? >> yeah, all right. >> no, it was fun. >> the beginning of a beautiful relationship. >> ceo of morgan stanley. thrilled to have you here. congratulations on the results. coming up two wheels, four wheels, polaris has a utility vehicle for you whether it's for work or play. the company's ceo is going to join us to talk consumer trends and the state of business. stick around for that and a lot more coming up right after this. at 1:45, the aflac duck was brought in

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welcome back to "squawk box." general electric reported quarterly profit of 44 cents per share. that's one cent above estimates. revenue was also beating wall street forecasts. and ge's chief executive officer jeffmy immelt made some upbeat comments about 2013. >> it is now 22.01. >> nice. similar situation in many respects at morgan stanley. they earned 45 cents a chair. that's ex-dva in the fourth quarter. revenue roughly in line. ceo james gorman telling us just minutes ago here on the set that the company has reached a pivot point. he sounded quite bullish on the markets and the economy. >> we're a long way from calling

this to be -- you know, we're not in a raging bull environment in any stretch. we've got a lot of issues in this country we're still working through. but there's some positive momentum. >> and -- >> up $1.30. >> at $22.10 now. >> this is going to be a good day. and lance armstrong admitting to oprah winfrey that he did, indeed, use performance enhancing substances after years of denying it, armstrong said it didn't feel wrong at the time, and that when he was doing it, it didn't feel like cheating. we talked a lot about that interview this morning. >> yes. oil is slipping though, slightly this morning as the algeria hostage crisis continues. the yen, a fresh -- i can't believe someone put that in there after everything i said, two and a half year low against the dollar. if it's a two and a half year low -- if it hit a two and a half year low last week, does it need to be new? it's just a two and a half year low. let's get to our trading block for more on oil and currencies. boris schlossberg of bks

management also kevin book, managing director at clearview energy partners is here, as well, on set. we have barry knapp, head of u.s. equity portfolio strategy and rebecca patterson, chief investment officer at bessemer trust. and you can start where you want, boris. either the euro, or the yen. i guess we were above 90 at one point today, right? >> the yen, actually, it hit higher highs than the two and a half year highs it hit last week. i don't know how you want to phrase it. it's moving up. >> new high. it hit a two and a half year high last week and this week. >> exactly. it just keeps on going. it is a locomotive. but i think we're getting at a point here of dangerously chasing this trade. everybody is long this trade right now. prime minister abe himself said this was his target for the time being and i think now is the time for the market to see if the boj is going to put up or shut up in terms of being support to support this exchange rate. to me at this point, maybe we

have another penny more on the upside. but if we get any kind of a wobble. any type of negative news, especially out of the u.s. data, because i think it's the u.s. data that's kind of driving this whole supposition. that the u.s. is going to pull everybody else forward we could come in for a little bit of profit taking. to me the trade may be to the short side or to the long side for dollar/yen. >> it really is what's happening here in the u.s., even that's dictating what's going on with the yen. >> exactly. >> -- thought. >> today is really going to be an interesting data point because if we get positive momentum out of the u.s. consumer i think you see this rally continue. but if the u.s. consumer pulls back because of the payroll tax increase you may have to use that as essentially an excuse to take some profits into the weekend. to me that's going to be the big event of the day. >> kevin, what is loeb going to do? last year wasn't quite as interesting as we had hoped. >> well, the oil world is going to be sort of boring as long as

nothing really exciting like algeria happens again. right now for the year we're at $93 wti, $110 brent and that's predicated on 1% brand growth which is below the numbers the international agencies put out this morning. they tend to start the year high, optimistic and pare it back as the year goes on. we're a little bit more skeptical as far as the heat of recovery, particularly the lower oil intensity of demand. if you have a second incident, you can start to get to the point where nonstate actors are beginning to interrupt the oil supply system because of actions in mali or just broader al qaeda risk. that will filter into the market. could take you up to 99 dollars per wear, wti for modest disruption risk. even above for the year, to 104. >> he we were at 93 dollars at other times didn't we get to $4 gas? something's weird. i mean, did no one even -- i don't even notice what the price is anymore and it's down at $3.30 or $3.40. >> well, yeah, that's a lot of

that has to do, i think, with risk internalization. as consumers we get more and more comfortable with things the more they stay constant. it's when they move fast that we freak out. we could get back to $4 a gallon gasoline. that has a lot to do with the gasoline supply itself, the refinery capacity and what happens with averages we can't anticipate. with rising oil prices going into the summer driving season, absolutely. >> it's also brent is the benchmark to watch. if brent goes to 125 we'll be at $4 a gallon. >> i think boris and kevin are making points you can tie together. the yen is selling off, japan is looking better in part because oil prices have come down. japan is a big energy importer. you get geopolitical risk coming back to the fore, oil prices go up, that would kill the yen trading. >> but they shut down their 47 nuclear power plants, right? so their dependence on that is even greater. >> $93 doesn't seem like oil has come down. >> it's all relative. >> boris and kevin, thank you.

up next, polaris, owner of victory and indian motorcycles and a maker of everything from snow mobiles to military vehicles joins us to talk about its new branding campaign, and rebounding sales. "squawk box" will be right back. (announcer) at scottrade, our clients trade and invest exactly how they want. with scottrade's online banking, i get one view of my bank and brokerage accounts with one login... to easily move my money when i need to. plus, when i call my local scottrade office, i can talk to someone who knows how i trade. because i don't trade like everybody. i trade like me. i'm with scottrade. (announcer) scottrade. awarded five-stars from smartmoney magazine.

the historic indian motorcycle brand got a new lease on life when polaris acquired the company in 2011. today the company is set to kick off its new branding campaign for the new bike, set to debut later this year. scott wine is ceo of polaris industries. he joins us now with more. you've got 14 dealers now. you're going to get to 150. people need to embrace indian for that to happen. >> well, certainly they need to embrace it. but a sign of the potential this brand has, roger penske of penske automotive group is one of the best dealer networks in the country for automotives and he's going to be one of our partners. >> and roger penske, that helps a lot obviously. is it a tough market to be in? either you go with the japanese bike or you buy a harley, normally. >> that's pretty much -- well, don't forget about our victory

motorcycle brand which we started from scratch in 1998. we're now the number two heavyweight player in that market. despite the fact you're spending a lot of money and having a great team we've got a 5% share and they've got an 80% share and we think now that we have the indian brand behind us, we've got a great opportunity -- >> most of your business is off-road stuff and snow mobiles and other things. is this for growth. does this make sense to do this? you have a pretty profitable company, making a lot of great stuff already. >> we have a great off-road vehicle business with the market leaders in that segment. our snow mobile business is very strong. we've got about 7% of the company currently in motorcycles and we think over time it could be 25 or more it's going to be a very big business for us. >> and is it a luxury buy buy today or not as much? any polaris vehicle? >> we certainly don't consider. they're work vehicles, joe. every now and then they have fun on them but a lot of people get a work value out of our vehicles. but the indian brand, one of the opportunities we had when we bought the company is the bikes were too expensive.

they're beautiful bikes, but they were priced out of the market. >> like how much? >> like $35,000 was the price point for many of the bikes that were sold. there weren't very many sold. but -- >> i was going to ask you about your app. you've been doing old school stuff, you're doing new school stuff. how do you teach me how to ride a bike with this thing? >> the history around ambien is phenomenal. the first motorcycle company formed in 1901 in springfield, mass. they had the first v-twin engine. but they were also the first and we had the conversation that you don't ride motorcycles. >> i don't. >> if you did, they were the first to invent the twist throttle. so our team and we're really strong on innovation, came up with a little app, and the app was really good about helping us get this on, and really shows the picture of a real throttle, and you can start it just like you would a motorcycle. and then you twist it you get

the sound of the bike. so we're releasing that app today. that will be one of the innovations that we bring to the market over the next six months before we make the big launch later this summer. >> i should practice with that. >> would be great practice for you. >> what did you use before? how did you do it before the twist throttle? when was that invented? >> i think that came out about 1904. >> and then before that you had to -- your hands must have been all over the place? >> well the gear shift now -- used to be a column ever here. you can just imagine -- >> but buying indian, since there hasn't been -- you're buying a brand but it's a new motorcycle you're making. >> it is an all-new motorcycle. one of the distngzs we had to make, because we have a victory motorcycle brand which does quite well we couldn't use any of the components or engines from that bike so we really started an all-new effort. >> awesome. >> i got the chance to ride the bikes, the development bikes, and they're fantastic. >> let's go play on them. >> all right. >> okay. >> scott thank you for being here. coming up, we're going to recap

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andrew, come over -- andrew, do you remember when we were driving those ferraris? >> yes. >> and you were riding with me and that was fun. >> that was scary. >> if i get a side car, would you -- think how much fun -- >> could i sit in the back? >> no, no, there's no room on the back. >> side car.

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inside morgan stanley's latest quarter. >> what i cared about was so many of the cylinders are starting to work. >> we'll talk to an analyst about the bank's report. plus a flood of earnings likely to drive markets next week, apple, google and 11 dow components set to report. howard ward is going to break down the key reports. the third hour of "squawk box" starts right now. welcome back to "squawk box." the music. it's metro, i think. metric. breathing underwater. first in business worldwide i'm joe kernen along with andrew ross sorkin. becky quick is off today. our guest host this morning rebecca patterson. chief investment officer at bessemer trust.

is that all you are? >> that's it. and a cnbc contributor, i think. >> cnbc contributor. you know some people here. >> yeah. i got some friends. >> you got some friends in high places. and barry knapp, barclays head of u.s. equity portfolio strategy. your daughter worked here. >> she did. >> she was great. >> it's a small world. >> it is. >> more from them in just a minute. first andrew. who is at cnbc. at the morning headlines. >> let's get you caught up. among our top stories, morgan stanley reporting fourth quarter profit of 45 cents per share. when the so-called debt value adjustment is excluded that's 28 cents when it's included. both numbers above the 27 cent street estimate. earlier on "squawk box" this morning, we had ceo james gorman, and he summarized the company's quarter. >> we think of all the digging and shoveling and cleaning up the last few years, that's done. now we get back to the fun stuff which is running the business. and that's what we're excited about. >> gorman also outlined his bullish view of the economy. take a listen to this.

>> u.s. economy is recovering. the u.s. consumer has delevered, has got more confidence back in the system, we're past the election. the u.s. economy is recovering. that's unmistakable. the speed of it still remains to be determined. >> we're going to have a lot more on morgan stanley in just a minute -- >> quote it then. >> the stock is moving -- >> 22.27 now. >> think it was the earnings or the interview? >> probably the earnings. but it's up like 1.5 now. it's a new high. >> and ge reporting earnings of 44 cents per share. a penny above estimates. revenue up $39.3 billion was higher than the street had expected. also, we got some news on boeing. a team of experts from boeing and the u.s. aviation authorities arriving in japan today. they're going to be inspecting that 787 dreamliner that made an emergency landing on a domestic al nippon airlines flight earlier this week. today the japan safety travel board is releasing a photo of the battery.

it showed the charred lithium-ion battery placed beside a normal battery and the jtsb says the battery in question was blackened and carbonized and had a bulge in the middle. and it weighs 11 pounds less than normal. than it was supposed to. that has some people a little nervous. china's economy rebounding in the final quarter of 2012. the latest gdp figures show that growth rose to 2.9%. that was up from 7.4% the previous quarter. economists caution that the chinese recovery likely to be too gradual and weak to drive a global rebound without improvement in the u.s. and your honor. and the head of china's bureau of statistics calling for urgent reforms to narrow the income gap between the rich and the poor. he said that the wealth gap had narrowed since the peak in 2008 but still remains relatively large. this is the first time since 2005 that china's provided official income disparity numbers. joe? >> you want disparity. you think it's bad here? >> much worse there. very true. >> let's check on the markets this morning.

good day that we had yesterday after those numbers. the claims numbers in the housing starts. today, we have a dow component general electric indicated higher, as a result the dow has indicated up a little bit so far. we'll see if it gets better as the day goes on. the nasdaq i'm sure intel isn't really helping the nasdaq. interesting action in apple yesterday. you had the day before where it broke under 500. then you had, actually two days ago, then it rebounded to back above 500 and people said oh, bottom's in, then it was down yesterday. so we'll see. we'll see. i don't know. it looks like a lower lows and lower highs right there. but we'll see whether it makes a stand. overseas, in asia this morning, you can see that the real action is in japan. with the nikkei up almost 3%. not back to 40,000 yet quite. but, that's the other one when you think about it. it was at 40? >> 39. >> 39.

and then finally in europe, take a quick look, not much happening, the ftse is the only average that's trading higher. more now on morgan stanley's report. joining us on the "squawk" news line is david krone, head of u.s. banks and broker research at jmp securities. david, what were the highlights for you in either the morgan report or what mr. gorman said on "squawk box"? >> well, you know, when you're not expecting much profitability, and then they beat you by a little bit, it can push the eps up well above your numbers. they beat us by about 7% in the top line. so you know, that got our attention a little bit. most of it was investment banking. which we saw from the peer reports earlier. trading is still kind of sluggish, and gwm did a little bit better. i do like that margin increase that they had with the new, you know, with the jv. so i think those were the highlights. >> i think the greatest thing that could happen to this company, and to anyone involved

in the stock market is, is maybe a new bull market where we get to some new ties, david. how much of what morgan stanley does from here, are they controlling themselves? is it in their own hands? and how much are they just subject to the whims of 99 economy and the stock market? >> well the one thing they can control, obviously, is the expense side. i think they did a pretty good job there. you know, they came in below our expectations on expenses and you saw, you know, the pay plan and everything. so i think he's pulled the levers that he could. i don't think there's a whole lot more i think they've cut as much as they can. but in terms of the top line, which they really can't control, morgan stanley is very equity centric now unlike some of their peers which are really more balanced or more bond centric. a lot of you guys in the media are talking about the potential for a great asset class shift from bonds to equities and if that happens that would be great for morgan stanley. not only in the absolute but relative to their peers.

>> so a lot of us in the media talking about that. i'm trying to think whether that's a good thing or a bad thing? the true professionals aren't talking about that? i'm not sure whether it's a good thing or a bad thing. >> all of us equity guys are hoping and praying for it. but we've been doing that for a few years now. >> but like 12 years. right? i mean, really. >> no, that's correct. >> it's about 12 years. >> so what -- >> even if it's -- even if it's worse than we think, i mean 15 is the outside for how long historically you're flat in terms of not making any progress, and the absolute value of the stock market, isn't it, david? isn't 15 about the maximum amount of time? >> yeah. now, of course, you know, equity revenues don't necessarily track exactly with the stock market. you know, we had some pretty good equity revenues when the credit boom was going, because it spilled over benefits to the equity side, too. but, yeah, i mean, you know, if you look at wall street's history over decades, you know, some of these cycles do last a

very long time, which make us, you know -- you guys in the media and us guys in the investment community, we tend to be kind of short-term focused so we see something that happens for ten years, we think it happens forever but it really doesn't. i mean eventually, you know, especially with bond yields where they are, one would intuitively assume that investors would tire out of that asset class and need to go somewhere else and really equities are the only one that can handle that kind of capacity. >> just simplistically saying, if i were running a financial services firm and like you just said, this firm more than most of the others is sort of equity based now, i would much -- i think that that's the right -- >> -- completely? >> it seems if you're going to -- you don't want to go 50/50, fixed income equities, do you? david? >> well, you know, obviously over cycles that's the right balance to have. you know, a lot of equity only firms, you know, kbw being a good example, you know, you had thomas wise am's firm.

when you're to equity centric and you get these long downturns you can't survive and have to sell your company. yeah, at this point in time from this vantage point i think you know you want to be contrarian and you want to be equity centric and that's where morgan stanley is particularly with the ack wiz ilgs of the jv. >> david, this is barry knapp. part of the issue with fixed income, and i'm curious for your comments on this, is if you want to restructure your fixed income business, you still have these big open questions about how the volcker rule is going to work. and what that means for the way you make markets in a vast, you know, array of fixed income instruments. and what your capital requirements are going to be. for all this hype about the mortgage market coming roaring back and driving bank earnings. banks are not putting mortgages on their books because they don't have their capital requirements until you get the so-called skin in the game risk retention qrm rules. so if you're morgan stanley, or whoever, you're still struggling to say, what is my fixed income business supposed to be like?

you know things are deleveraging and it's going to shrink but you just don't know what to emphasize and what not to emphasize. >> yeah, absolutely. i mean, fixed income is substantially more capital intnsive than equities. your equity inventories that you need for clients is relatively small in dollar terms. and you just hit the nail on the head. volcker is a big wild card out there. definitely affects your fixed income biggest. not so much the equities trading business. >> david, it's rebecca patterson. it did seem with the recent job cut announcements that they're trying to downsize a tiny bit the ib broadly and maybe tilt a little bit more towards wealth management. do you think this is a path that a lot of banks seem to be taking to try to smooth out the earnings and get a little more sticky business? >> well, not too many are in that position. you know, morgan stanley, by fate one way or the other, they made a huge mistake. you could say a made a huge mistake cutting their fixed income business in late '08

because '09 was a phenomenal record shattering year, but that's in the past. looking forward, you know, private client is a very valuable business. they have a great client set there, high fee paying people which can yield a business that's quite profitable. so they're in a very good position there. you know their investment bank has held up quite well. they haven't had the attrition of some of the more universal banks in their investment banking group. and they're just not that strong in fixed income. so they just happen to have the mix that i think, you know, as we've discussed, is in the right place at the right time, hopefully. >> okay, david trone, thank you for calling in today. >> thank you. >> okay. >> coming up, university of texas economist james galbraith on why cuts to some entitlement programs would be a drag on the economy. we are going to have a debate about that. as we head to a break, take a look at this picture. florida senator marco rubio with glakstone ceo steve schwartzman

yesterday, and yes, those are some penguins. the photos at the bottom of the picture are penguins from sea world orlando who happened to be in schwartzman's new york office when rubio happened to stop by because that's what you do, you have penguins in your office when you have a big private equity firm. the penguins are part of the antarctica exhibit at the new york travel show that's coming up this weekend. still ahead on "squawk box," thinking outside the box to pay down our nation's debt. economist miles kimball wants the u.s. to create a sovereign wealth fund that would focus on profit making. he'll explain at 8:40 a.m.

welcome back to "squawk box." right now, futures up 15 points. that's more than 10. a side car on a motorcycle. that would be fun. you've got to admit. >> by the way, somebody tweeted us an old sort of antique picture of two guys, with a motorcycle and the side car and they said joe and andrew. >> you won't have to shift. >> i will do all and sit there in pure terror.

>> watching your wristband. watching your pulse. >> watching your pulse go up on your wristband. >> okay. let's talk about the debt ceiling. is it an overrated crisis? our next guest is from austin, texas, james galbraith, university of texas economist. also the author of "inequality and instability." we want to talk to but the debt ceiling, particularly entitlements, james. what is your sense, if today and now is not the time to cut entitlements, when is the time to cut entitlements? >> i don't think it's a good idea, from the standpoint of the future of the american economy to reduce the security that people expect in their old age. so we're talking about social security here. talking about mid care. we're talking about medicaid. these are foundations for the future life of most of the working population of the country at the moment. if you cut them, people will draw back in their current activity, at least to some

degree. >> right. >> so you're basically saying you're going to do something which will squeeze people's living standards out in the future. it will not have any direct effect today on economic activity. except to the extent that people react to that by deleveraging more and saving more. which they will. >> james, here's the question, though. if the average american is putting into the system, let's say $100,000, $130,000 in their lifetime, and yet, through medicare, medicaid, and other entitlements, is taking out something on the order of $300,000 to $400,000, that's clearly an unsustainable model. right? >> no, it's not unsustainable. because when they take that out in the future, they will be taking it out from a much more productive economy that we expect to have at that time. so there's really no reason to be scared by that kind of comparison, in fact. >> how do you square the circle, though? i apologize, it's rebecca

patterson. you're going to need a lot more productivity to make up that gap, aren't you? i mean the health care -- >> i mean you are going to get more productivity. in health care you need to control costs of the medical sector as a whole, not simply the costs that affect those people who happen to be elderly and on a public insurance system. that's a general problem of the health care system. cutting medicare as a response to that is just a way of saying, we're going to take this out of the hides of the elderly. that to me is discriminatory, makes no sense at all. >> james, you know how a lot of things that we promised in the past were defined benefits. and there's a lot of private industry and others are moving to a defined contribution system. and some people think that might be a better way to control costs with some of our entitlements. if you disallow going from a defined benefit to a defined contribution, aren't you -- isn't that a really good arrow in the quiver of trying to control costs, if it's something that the person is dealing with h himself, and it's kind of

self-directed and don't they become much more aware of utilization and over-utilization if they're somehow personally involved in paying for what they're getting? >> well, people, of course, do pay copays and so forth. but the shift in the private sector toward defined contributions is a very good reason to retain this modest, basic level of defined benefits in the public programs. that way you get a good mix and people feel fundamentally secure. they are not going to be deeply poor, even if their 401(k) tanks in the future. they've got that basic level of security. >> we've seen the -- >> doing everything one way or another is not a good idea. >> i don't know what the right level of promises for a government is. and that's what we're talking about here. would you say that in certain parts of europe, that they overpromised to the extent that trying to provide this safety net has really caused stagnation in the entire area, and just really taken away the future of a lot of generations in different parts of europe, even

though it was well intentioned, it was going to be something that people from cradle to grave were going to hopefully have a minimal standard of living, and they could be assured of that. and now in places like spain, they don't even have that? >> i don't think there's any reason to believe that. the most generous welfare systems in europe are in germany and in scandinavia, and those countries don't have a competitiveness problem. you look at the german trade balance, the problem in europe is exactly the reverse. germany's running a huge surplus. that's partly the success of the social welfare system that they've put in place, which makes it an extremely good police to have high productivity workforce. >> but i mean there's been a lot of work, talk about global manufacturing, competitiveness, for example. it's estimated by 2015 all end productivity, transportation costs adjusted, it will be a push to manufacture roughly 2 trillion in products here versus china. with germany 35%, leaving spain and france even farther adrift,

yes, germany's done really well in terms of a trade surplus on the backs of the rest of europe, and they've done reasonably well selling capital goods into china. but germany's got a competitiveness problem. why is bmw setting up their plants in the south, why is basf building chemical plants here? >> germany certainly is exporting some of its very fine manufacturing capacity. now that doesn't say it has a competitiveness problem. you have to -- if you look at the german current account you'll see that's clearly not the case. germany's problem is the reverse. it's been running a huge surplus which is the deficit of the other countries of europe that they cannot finance. >> correct. >> that is the essence of the european crisis. >> but in a global environment -- >> the whole question with respect to the u.s. is whether we can sustain our current account relationship with the rest of the world. and particularly with china. and that's a decision that the rest of the world will make. it's completely -- >> james, are we -- we added a new entitlement, obama care,

which some, i don't know what that's going to cost. there's some groups, i guess they would call them, if they're too conservative, but trillions and trillions of dollars of additional entitlements that we've just layered over the entitlements we already have. are we at the right level now? is this the perfect level of promises we've made? or would you even go above where we are right now? >> well, i think the problem that we have is that our health care sector is bloated by this enormous private insurance system that we have. this sort of mixed bag of insurance schemes. that makes our health care system much more costly than health care is anywhere in the world. that's a problem that we have to deal with. but did obama care raise the cost of health care in the country? no. i don't think it did. i think it was designed -- >> it's going to be a big entitlement. it's going to cost money to cover 40 million -- >> you're shifting tension from the private balance sheet to the public balance sheet. that's not a net increase in cost in any economic sense. >> but if you don't attribute

any of the efficiency of our health care system to innovation from the profit incentive, is there any business that wouldn't be better if there wasn't a profit incentive, then? >> of course a profit incentive is important. but in health care, in fact, what the major any novations come out of the center for disease control, the national institutes of health. we have an enormous public sector contribution to this. >> right. but i think that -- >> to overlook that reality is really -- >> -- the basic science. but the application of the basic science comes from entrepreneurs and people that are in the business for profit. no? medical devices -- >> the health care system has got a profit making component. it's got a large nonprofit component. it's got a public component. but the innovation is heavily funded by the public sector, of course. >> in general would you say that the private sector is more ee fishent in doing certain things than the government? >> the private sector is certainly more efficient at doing certain things than the government.

and the public sector is more efficient, particularly in providing insurance than the private sector is. >> james, we're going to leave it there. it's a debate that i imagine is going to continue, and we'll have to have you back to continue it. thanks so much. >> thank you very much. >> coming up. a shortage at the u.s. mint. we're going to tell you what's in low supply next. and then at 8:30, gamco's howard ward will join us to talk earnings. lots of major reports due next week. we've had some this week, as well. "squawk" will be right back. ♪ ♪ ♪ [ male announcer ] some day, your life will flash before your eyes. ♪ make it worth watching. ♪ the new 2013 lexus ls. an entirely new pursuit.

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welcome back to "squawk box" this morning. making headlines, the u.s. mint has now run out of 2013 silver coins. it's therefore suspending sales. authorized dealers should expect to resume purchases around the week of january 28th after the mint replenishes its inventory. coin interest is said to have ballooned this year due to investors seeking refuge from economic uncertainty. 2013 silver coins fetched just less than $63 each. coming up we're going to recap this week's earnings, and look ahead to the major reports coming up next week. but first, a look at some of the stockses on the move in early trading this morning. omnipotent of opportunity. you know how to mix business... with business. and you...rent from national. because only national lets you choose any car in the aisle. and go. you can even take a full-size or above.

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welcome back to "squawk box" this morning. we're talking about music. >> this is the second metric song of the morning. >> youth without you. >> i'm not sure i know what that means. >> stocks on today's movies morning.

ceo jeff immelt giving an upbeat outlook for 2013. morgan stanley earning 35 cents a share. that's excluding dva compared to estimates of 27 cents. ceo james gorman talked about the quarter earlier on "squawk." >> we think of all the digging and shoveling and cleaning up that we've done the past few years, that's done. now we get back to the fun stuff which is running the business. that's what we're excited about. >> intel shares are under pressure. investors are concerned about a bigger than expected increase in capital spending. >> we will get a flood of quarterly reports next week. among the highlights, these dow components, du pont, j&j and travelers. i think all on monday. on tuesday, apple and mcdonald's. apple still not a dow component. even though it's the biggest -- >> i don't think you would want it to be a dow component. it would overwhelm the dow. >> but it's weird to not have the biggest market cap company

in the world. mcdonald's, at&t, 3m on thursday, and procter & gamble on friday. joining us now, howard ward, cio at gamco investors. also rick santelli from the cme in chicago and steve liesman is also on set today. howard, did you see ge today? >> i saw the top one. i haven't had a chance to look at the line. >> line above expectations. >> bottom line was -- >> stock is called higher. overall how we doing so far? >> really the earnings season is conforming to expectations. the market's looking for this quarter to verngs up about 7%. operating earnings. let me frame this for you a little bit. 2011, the fourth quarter was actually the weakest quarter for earnings. so the comparison is a little bit easier now, you know, this year versus last year. and this year the fourth quarter

is going to be the strongest quarter for earnings. looks like the economy ended the year with a little bit more momentum than many of us have thought. if you ack loot autos, housing, retail sales, industrial production, ongoing improvement and weekly unemployment claims the economy has a little bit of moment up here. more than a little bit. i think that's positive for earnings. and we're seeing that. the earnings season is conforming to these expectations about three quarters of the companies have reported positive surprises. that's very standard. very typical. 75% are almost always false. companies do a good job of managing their earnings. the average earnings surprise is around 1%. typically we're getting a little bit of a boost in the shares when they report those surprises. the positive surprises are helping the share prices. >> what about 2013 versus 2012? >> what would you be happy with? >> there will be -- there it be

an increase? >> yeah, so joe, for 2012, if we get the 7% increase in the fourth quarter, that is the consensus, then you actually could send up with a record earnings -- record operating earnings for 2012. a little bit up, maybe 2%. so 2013 the expectation we think about 7% to 8% increase in s&p earnings, get up around 108, 109, maybe even 110. >> peothin going to be flat or down. >> well, their evidence for that is very sketchy. a lot of it is based on the thee remember that margins have peaked and therefore products are going to go down. >> and gdp will be 2%. phil orlando was on, 1.7 is where he is. >> for what? >> gdp. >> the entire year. >> that's low. >> when we're talking about earnings, i don't think the fourth quarter earnings are going to be a problem for companies. it doesn't look like it's shaping up that way. even though only a quarter of the companies have reported so far. >> a bad bet to bet against

companies not making money, correct? >> correct. >> the issue is going to be guidance. we are going to have the tax increases will play a role. there will be some spending cuts come hell or high water before the year is out. that will act as a bit of a break on economic growth. >> the last five quarters guidance for the next quarter has come down between 2.5% and 3%. so far this quarter, companies that miss are under performing the market by 3% over the next day, companies that beat are outperforming by less than a half of one percent. guidance is coming down again. the 10% bottoms up consensus number is too high. we think the number next year is going to be four, which is roughly nominal gdp. >> for 13. >> and that's what we're thinking -- >> will be 4, which is roughly nominal gdp. there's an argument for it accelerating to 6 in 14 based on improved capital spending. >> sort of flush out that forecast. is that 4% with declining unemployment, rising incomes, or

is that 4% growth with a 2% gdp economy? >> it's 4% nominal gdp which is then through the cycle. 2% real, right? but in the back half of the year, there is a real prospect for some pickup in core inflation and improving cap-ex that potentially sets the stage for growth in 2014 >> by the way just for the record, and i think howard was sort of alluding to this, that's been the wrong forecast for the last several years, right? in that, companies have been able to extract more -- >> no, no, no, no. >> earnings went down 57%. >> they went -- >> in 2009. they went up 38 in 2010. and 15 in 2011. that was just riding back up the "v." then as we got into a more normalized environment we went to 4 which is nominal gdp long-term trend for earnings growth is 6. >> -- is already here. >> all that's really happened is in 10 and 11 they rebounded and

now we've gotten back to reality which is a fairly slow growth environment. the question is whether we can start accelerating towards a higher growth rate in '13 because we get a pickup in capital spending. >> if we get that acceleration we have higher stocks, rising inflation. >> -- for multiples. >> then we start worrying is the fed going to take away the punch bowl and then what do equities do? every time we've seen that the last couple years it makes stocks wobble. >> let me get rick in. rick santelli, do you have any comments on this? did you -- were you listening to james galbraith, did you hear the university of texas economist on -- did you watch that? >> i didn't. i wasn't able to, joe. i apologize. >> i might send you a -- i might send it to you anyway. what do we do next year, gdp? what about earnings? >> they're all very sharp.

i don't know, here's what i would say. my interpretation is you're never going to find many stock gurus that are going to give you metrics that don't work out to be somehow perceived as half full. i continue to look at growth rates. and i kind of see it half empty. but i'm glad that we agree that the glass is half, one way or the other, no matter what your interpretation is. and it's the half that i guess bothers me. i'd like to see the growth get higher. so 1.7 to 2.5 gdp growth i don't see as getting out of that range. so if you're pessimistic or optimistic, keep doing better. i think that the average guy on main street when he fills out surveys is going to keep saying you know, things don't really quite feel good. i think that's going to characterize 2013. >> howard? >> one more point here, joe, as we get to the end of 2013, stocks are going to be priced for 2014. so we do have to keep extending our horizon and not be overly

focused on what's happening or what happened last year now. >> right. and. fed in 2014 will be 4ri8 changed from what they're doing now? >> i think you look forward to a point in time and we're just going to have to listen more and more for the guidance from really the center. guys like lockhart has identified himself as a guy who's really concerned about growing this balance sheet by a full trillion dollars, doing the full $85 billion of qe a month. and i think sometime in june, maybe even before that, if they're a little more nervous and look to the growth rates that barry was talking about. we start doing 5% gdp, if we start on the nominal side, if unemployment starts coming down for real reasons, as in not just the decline in the participation rate i think you can look forward to a less active fed at some point. bringing forward some work that was done by morgan stanley and some other folks -- sorry hsbc. you know what? i think the fed is on hold on a rate basis until 2015 whether it does the full qe for the full

year i think it's a june to december question and it could be that we start to price that in around june or august. >> steve an interesting related point to that people forget last spring there was a little inflation scare there. bill dudley, who is part of the leadership arguably was concerned about it and talked about it in a few speeches. we get to midyear and the fiscal multipliers aren't all that great and there is a bit of a pickup in the core, there will be at least a debate about tapering those purchases. >> i had brought on an entire report on inflation that i'm pretty sure joe knew about so he directed the conversation else where to make sure that we didn't -- >> you had a report? >> i brought a bunch of screens to talk about the big inflation debate which i think is something worth talking about. i still think that bottom line, i don't think we're at or near that, either hyperinflation, or even inflation at 2.5%. >> that's some nice screen -- nice screens. >> you did it in one sentence. >> so you can do it -- >> i can if i need to. i can if i need to. since we have -- i don't think

it's a problem for this year. >> good. rick, what will a high on the ten-year be next year on the yield? >> this year -- >> for 2013? >> this year, yeah. >> i think that the high yield for this year will be between 225 and 235. >> okay. >> and i don't think we'll be up there long. >> 2%. >> right. and that would suggest the fed's not going anywhere fast which means people keep buying high dividend stocks. people keep high yield bonds. >> all right. howard -- >> steve one quick question, does our esteemed panel look at the fed as kind of a financial liquidity entitlement society? in other words, we can't do entitlement reform because nobody wants to give up, you know, the money. do they see the fed exit as any different? the markets are used to this financial liquidity subsidy. i think it's going to be so difficult to extract it. >> all right. >> financial repression is a tax. >> the market will want the fed to get out at the right time.

>> the market will probably try to kick them out but that doesn't mean that it's going to be an enjoyable process. bye. i am off next week. see you guys in a week. >> coming up, should the united states create a sovereign wealth fund? that is the question university of michigan economist says it would take political pressure off the fed and help reduce our long-term deficit. that professor is going to join us after the break. most of my life. you name it...i've hooked it. but there's one... one that's always eluded me. thought i had it in the blizzard of '93. ha! never even came close. sometimes, i actually think it's mocking me. [ engine revs ] what?! quattro!!!!! ♪ i've got a nice long life ahead. big plans. so when i found out medicare doesn't pay all my medical expenses,

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welcome back to "squawk"

this morning. time for the fed to step aside and let another institution shoulder some of the financial stress. that's the question that our next guest says the u.s. should have its own sovereign wealth fund to keep fed losses at bay and earn higher returns for the country. it's an interesting thought. joining us now miles campbell, he's the professor of economics at university of michigan. good morning to you. >> good morning. thank you. >> so what is this idea? it sounds interesting/slightly a little crazy, i will admit. >> well, i hope -- i don't think it's crazy at all. but it is very new, and any time something is new it takes a little explaining. so, the fed, having gotten its main interest rate down to zero and treasury bill rates pretty close to zero, has had to buy other things besides treasury bills. and that has created a lot of criticism. so, it would, and also -- so the argument is really you should have another institution that takes some of the political heat off the fed.

also long-term treasury bonds are probably not the right thing to be buying in order to stimulate the economy. ideally, you get a lot more oomph from buying stocks and long-term bonds. that would give a lot more stimulus to the economy. but that's not something that the fed could ever do without getting a huge amount of controversy. also it's not something the fed is well prepared to do. but it's exactly the sort of thing that sovereign wealth funds do all the time. >> professor, do you -- >> they buy a wide range of assets. >> do you think the u.s. could ever get to a police politically where the government would be comfortable giving the fed the ability to buy lots of stuff? i mean, we've seen in other countries with sovereign wealth funds generally they have a lot of reserves. they have large current account surpluses. they're big commodity exporters and there's still a lot of heat on these countries to have transparency around what they're owning. i think it's an interesting idea. i have a hard time seeing the u.s. congress going for it. >> you certainly need a huge

amount of transparency here. but, you made a good point that sovereign wealth funds are really standard around the world. they're standard -- they're the standard thing to do if, instead of having a national debt you have yoosh yoosh dur in the black and you have a lot of national -- >> but we're not. we're -- >> where does the money come from? >> but what we can do, see the thing is, the u.s. government can borrow at very, very low interest rates. so we can borrow at very low interest rates and buy stocks and junk bonds and actually -- >> what happens if these are all lousy investments, so we're -- we're in the red to begin with, and then let's say the investments go in the red. we saw what happened with solyndra and so the political outcry that that created. >> well, the first thing is you want to be very diversified. the other thing to realize is the u.s. government takes on a lot of risk no matter what. as it is now the big wall street banks have this deal where it's heads they win, tails the taxpayer loses.

the taxpayer should actually be getting some of the return that goes along with that risk. and right now we're not. the taxpayer is left holding the bag when the big banks go get in trouble. but we're not getting the upside of that. wand the sovereign wealth fund you could get the upside as well. >> professor, broader based question for you, the three periods in the last 70 years where we've had expansions of p/e multiples, strong capital spending, have all been ones when we've had positive real interest rates, and very stable monetary and public policy. the '50s, the '80s and the '90s. don't we want to get away from the public sector getting involved in these capital markets? isn't that what ultimately will encourage private capital formation? why would we want a sovereign wealth fund to do what the fed's doing? why do we want that done at all? >> it's the other way around. when the economy is doing well, then interest rates are higher. so, what we have to do whatever it takes to get the economy to do well. once it's doing well, you

then -- then the fed would pull back on things so we didn't get the economy overheated. but then you still want the sovereign wealth fund to be there to help with the financial stability. it would -- the head of the sovereign wealth fund would be part of the financial stability council. it would be -- they'd have the kind of expertise to do a lot to evaluate those kinds of financial stability issues. >> okay. miles we're going to leave it there. we appreciate your time and if you have a second to read it, there is an interesting article about this on courts which is where we found out about this idea. >> coming up, jim cramer's take on the stories of the morning. morgan stanley, general electric, lance armstrong. don't want to say lance armstrong after general electric. anyway, stick around.

welcome back to "squawk box." jim cramer joins us now from the new york stock exchange. the two big guys we've been talking about all day is morgan stanley, which is at a new high, and general electric, which beat on the top line and bottom line. and we we don't always see. >> i want to congratulate you. i thought the gorman interview was incredible.

the guy comes on right when it hits the tape. it was even more bullish than the actual earnings, the release. it was a great interview and i feel very confident gorman's got this under control. general electric, little more subdued. the industrial numbers are terrific. i really think people are going to be struck by the industrial profits, 12% year over year. china, they're up. i think the both quarters were stellar. >> japan is cranking today, jim. is it different than anything they've tried in the past 20 years? is it really different this time? >> i think that the trajectory of toyota motor and honda, i don't know if you've seen those two stocks, people want these stocks so badly. they can become very competit e competitive. if you can get a toyota for substancely under the cost of another car, i'll admit i'm on

board here. i'm on board with ewj, i believe in japan. >> they can finally get inflation and people finally spend some of their savings, maybe somebody will get married and have some kids. everything would work, right? >> anything can happen over there. i've got to tell you, this is the first good sign i've seen -- remember, 1989, their market was 39,000. >> i know. >> this is the real -- this is a real move in toyota and a real move in honda. i think the ewj is the best way to play. >> that's interesting. you're actually looking at the individual stocks that would benefit from the way you're doing it, jim. >> sony's harder. i'm not sure that that company is in the right spot. but toyota and honda never lost a cache, but they were overvalued because of the currency. >> jim, real quick, long or short lance armstrong after that interview last night? >> he's like the worst guy ever. that's horrible.

>> jim, i choose my words carefully. i used the ah word. >> bingo. >> the way you treat other people, and he said, yeah, i guess i was a little bit of a bully. and then you sued this person. well, maybe, we sued so many people. >> he's horrendous. has he no shame? >> put him next to the guy from south carolina, sanford or tiger, he's not similar to any of the dogs like that. but this is -- >> oh, hey, i wish there were an ethics jail. michael vick actually spent time in prison. >> exactly. >> he's horrendous. what a bad guy. >> narcissist. >> yeah. >> anyway -- >> a bad guy. >> all right, jim, thanks. we'll see you in a while. coming up, we'll get the last word from our guest hosts as we try to get over lance

armstrong. we're back in a minute. next week on "squawk box," some big names, ceo of hedge fund tbgx on capital, and austin ghoulsby, former economic adviser to president obama. plus live interviews with business big wigs. all next week starting at 6:00 a.m. eastern. what are you doing? nothing. are you stealing our daughter's school supplies and taking them to work? no, i was just looking for my stapler and my... this thing. i save money by using fedex ground and buy my own supplies. that's a great idea. i'm going to go... we got clients in today. [ male announcer ] save on ground shipping at fedex office.